CASES IN TAXATION BATCH 3 (CASE DIGEST)

1) Carlos Superdrug Corp. v. DSWD (526 SCRA 130, 140. 143-145)

FACTS:
Petitioners are domestic corporations and proprietors operating drugstores in the
Philippines. Petitioners assail the constitutionality of Section 4(a) of RA 9257, otherwise known as
the Expanded Senior Citizens Act of 2003. Section 4(a) of RA 9257 grants twenty percent (20%)
discount as privileges for the Senior Citizens. Petitioner contends that said law is unconstitutional
because it constitutes deprivation of private property.
ISSUE:
Whether or not RA 9257 is unconstitutional
HELD:
Petition is dismissed. The law is a legitimate exercise of police power which, similar to the
power of eminent domain, has general welfare for its object. Accordingly, it has been described
as the most essential, insistent and the least limitable of powers, extending as it does to all the
great public needs. It is the power vested in the legislature by the constitution to make, ordain,
and establish all manner of wholesome and reasonable laws, statutes, and ordinances, either
with penalties or without, not repugnant to the constitution, as they shall judge to be for the
good and welfare of the commonwealth, and of the subjects of the same.
For this reason, when the conditions so demand as determined by the legislature, property rights
must bow to the primacy of police power because property rights, though sheltered by due
process, must yield to general welfare.
2) Reyes v. Almanzor (196 SCRA 322)
FACTS:
Petitioners JBL Reyes et al. owned a parcel of land in Tondo which are leased and occupied
as dwelling units by tenants who were paying monthly rentals of not exceeding P300. Sometimes
in 1971 the Rental Freezing Law was passed prohibiting for one year from its effectivity, an
increase in monthly rentals of dwelling units where rentals do not exceed three hundred pesos
(P300.00), so that the Reyeses were precluded from raising the rents and from ejecting the
tenants. In 1973, respondent City Assessor of Manila re-classified and reassessed the value of
the subject properties based on the schedule of market values, which entailed an increase in the
corresponding tax rates prompting petitioners to file a Memorandum of Disagreement averring
that the reassessments made were "excessive, unwarranted, inequitable, confiscatory and
unconstitutional" considering that the taxes imposed upon them greatly exceeded the annual
income derived from their properties. They argued that the income approach should have been
used in determining the land values instead of the comparable sales approach which the City
Assessor adopted.
ISSUE:
Is the approach on tax assessment used by the City Assessor reasonable?
HELD:
No. The taxing power has the authority to make a reasonable and natural classification for
purposes of taxation but the government's act must not be prompted by a spirit of hostility, or at
the very least discrimination that finds no support in reason. It suffices then that the laws
operate equally and uniformly on all persons under similar circumstances or that all persons
must be treated in the same manner, the conditions not being different both in the privileges
conferred and the liabilities imposed. Consequently, it stands to reason that petitioners who are
burdened by the government by its Rental Freezing Laws (then R.A. No. 6359 and P.D. 20) under
the principle of social justice should not now be penalized by the same government by the

imposition of excessive taxes petitioners can ill afford and eventually result in the forfeiture of
their properties.

3) CIR v. CA (261 SCRA 236)

"Before one is prosecuted for willful attempt to evade or defeat any tax, the fact that a tax
is due must first be proved."
FACTS:
The CIR assessed Fortune Tobacco Corp for 7.6 Billion Pesos representing deficiency
income, ad valorem and value-added taxes for the year 1992 to which Fortune moved for
reconsideration of the assessments. Later, the CIR filed a complaint with the Department of
Justice against the respondent Fortune, its corporate officers, nine (9) other corporations and
their respective corporate officers for alleged fraudulent tax evasion for supposed non-payment
by Fortune of the correct amount of taxes, alleging among others the fraudulent scheme of
making simulated sales to fictitious buyers declaring lower wholesale prices, as allegedly shown
by the great disparity on the declared wholesale prices registered in the "Daily Manufacturer's
Sworn Statements" submitted by the respondents to the BIR. Such documents when requested
by the court were not however presented by the BIR, prompting the trial court to grant the
prayer for preliminary injuction sought by the respondent upon the reason that tax liabiliity must
be duly proven before any criminal prosecution be had. The petitioner relying on the Ungab
Doctrine sought the lifting of the writ of preliminary mandatory injuction issued by the trial court.
ISSUE:
Whose contention is correct?
HELD:
In view of the foregoing reasons, misplaced is the petitioners' thesis citing Ungab v. Cusi,
that the lack of a final determination of Fortune's exact or correct tax liability is not a bar to
criminal prosecution, and that while a precise computation and assessment is required for a civil
action to collect tax deficiencies, the Tax Code does not require such computation and
assessment prior to criminal prosecution.
Reading Ungab carefully, the pronouncement therein that deficiency assessment is not
necessary prior to prosecution is pointedly and deliberately qualified by the Court with following
statement quoted from Guzik v. U.S.: "The crime is complete when the violator has knowingly
and wilfully filed a fraudulent return with intent to evade and defeat a part or all of the tax." In
plain words, for criminal prosecution to proceed before assessment, there must be a prima facie
showing of a wilful attempt to evade taxes. There was a wilful attempt to evade tax in Ungab
because of the taxpayer's failure to declare in his income tax return "his income derived from
banana sapplings." In the mind of the trial court and the Court of Appeals, Fortune's situation is
quite apart factually since the registered wholesale price of the goods, approved by the BIR, is
presumed to be the actual wholesale price, therefore, not fraudulent and unless and until the BIR
has made a final determination of what is supposed to be the correct taxes, the taxpayer should
not be placed in the crucible of criminal prosecution. Herein lies a whale of difference between
Ungab and the case at bar.

4) Gomez v. Palomar (25 SCRA 827)

FACTS:
Petitioner Benjamin Gomez mailed a letter at the post office in San Fernando, Pampanga. It
did not bear the special anti-TB stamp required by the RA 1635. It was returned to the petitioner.
Petitioner now assails the constitutionality of the statute claiming that RA 1635 otherwise known
as the Anti-TB Stamp law is violative of the equal protection clause because it constitutes mail
users into a class for the purpose of the tax while leaving untaxed the rest of the population and
that even among postal patrons the statute discriminatorily grants exemptions. The law in
question requires an additional 5 centavo stamp for every mail being posted, and no mail shall
be delivered unless bearing the said stamp.
ISSUE:
Is the Anti-TB Stamp Law unconstitutional, for being allegedly violative of the equal
protection clause?
HELD:
No. It is settled that the legislature has the inherent power to select the subjects of
taxation and to grant exemptions. This power has aptly been described as "of wide range and
flexibility." Indeed, it is said that in the field of taxation, more than in other areas, the legislature
possesses the greatest freedom in classification. The reason for this is that traditionally,
classification has been a device for fitting tax programs to local needs and usages in order to
achieve an equitable distribution of the tax burden. The classification of mail users is based on
the ability to pay, the enjoyment of a privilege and on administrative convenience. Tax
exemptions have never been thought of as raising revenues under the equal protection clause.
5) Eastern Theatrical Co. v. Alfonso (83 PHIL 852)
FACTS:
The municipal board of Manila enacted Ordinance 2958 (series of 1946) imposing a fee on
the price of every admission ticket sold by cinematograph theaters, vaudeville companies,
theatrical shows and boxing exhibitions, in addition to fees imposed under Sections 633 and 778
of Ordinance 1600. Eastern Theatrical Co., among others, question the validity of ordinance, on
the ground that it is unconstitutional for being contrary to the provisions on uniformity and
equality of taxation and the equal protection of the laws inasmuch as the ordinance does not tax
other kinds of amusement, such as race tracks, cockpits, cabarets, concert halls, circuses, and
other places of amusement.
ISSUE:
Whether the ordinance violates the rule on uniformity and equality of taxation.
HELD:
Equality and uniformity in taxation means that all taxable articles or kinds of property of
the same class shall be taxed at the same rate. The taxing power has the authority to make
reasonable and natural classifications for purposes of taxation; and the theater companies
cannot point out what places of amusement taxed by the ordinance do not constitute a class by
themselves and which can be confused with those not included in the ordinance. The fact that
some places of amusement are not taxed while others, like the ones herein, are taxed is no
argument at all against the equality and uniformity of the tax imposition

6) Manila Race Horse Trainers Assn., Inc v. De La Fuente (88 PHIL 60)
RULING:
In taxing only boarding stables for race horses, we do not believe that the ordinance,
makes arbitrary classification. In the case of Eastern Theatrical Co. Inc., vs. Alfonso, it was said
there is equality and uniformity in taxation if all articles or kinds of property of the same class are
taxed at the same rate. Thus, it was held in that case, that "the fact that some places of
amusement are not taxed while others, such as cinematographs, theaters, vaudeville companies,
theatrical shows, and boxing exhibitions and other kinds of amusements or places of amusement
are taxed, is not argument at all against the equality and uniformity of tax imposition." Applying
this criterion to the present case, there would be discrimination if some boarding stables of the
same class used for the same number of horses were not taxed or were made to pay less or
more than others. From the viewpoint of economics and public policy the taxing of boarding
stables for race horses to the exclusion of boarding stables for horses dedicated to other
purposes is not indefensible. The owners of boarding stables for race horses and, for that matter,
the race horse owners themselves, who in the scheme of shifting may carry the taxation burden,
are a class by themselves and appropriately taxed where owners of other kinds of horses are
taxed less or not at all, considering that equity in taxation is generally conceived in terms of
ability to pay in relation to the benefits received by the taxpayer and by the public from the
business or property taxed. Race horses are devoted to gambling if legalized, their owners derive
fat income and the public hardly any profit from horse racing, and this business demands
relatively heavy police supervision. Taking everything into account, the differentiation against
which the plaintiffs complain conforms to the practical dictates of justice and equity and is not
discrimatory within the meaning of the Constitution.
7) Punsalan v. Mun. Board of the City of Manila (95 PHIL 46)
FACTS:
The plaintiffs--two lawyers, medical practitioner, a dental surgeon, a CPA, and a
pharmacist--sought the annulment of Ordinance No.3398 of the City of Manila which imposes a
municipal occupation tax on persons exercising various professions in the city and penalizes nonpayment of the tax, contending in substance that this ordinance and the law authorizing it
constitute class legislation, are unjust and oppressive, and authorize what amounts to double
taxation. The burden of plaintiffs' complaint is not that the professions to which they respectively
belong have been singled out for the imposition of this municipal occupation tax, but that while
the law has authorized the City of Manila to impose the said tax, it has withheld that authority
from other chartered cities, not to mention municipalities.
ISSUE:
Does the law constitute a class legislation? Is it for the Court to determine which political
unit should impose taxes and which should not?
HELD:
No. It is not for the courts to judge what particular cities or municipalities should be
empowered to impose occupation taxes in addition to those imposed by the National

Government. That matter is peculiarly within the domain of the political departments and the
courts would do well not to encroach upon it. Moreover, as the seat of the National Government
and with a population and volume of trade many times that of any other Philippine city or
municipality, Manila, no doubt, offers a more lucrative field for the practice of the professions, so
that it is but fair that the professionals in Manila be made to pay a higher occupation tax than
their brethren in the provinces.

8) City of Bagiuo v. De Leon (25 SCRA 938)

"There is no double taxation where one tax is imposed by the state and the other is imposed by
the city."
FACTS:
The City of Baguio passed an ordinance imposing a license fee on any person, entity or
corporation doing business in the City. The ordinance sourced its authority from RA No. 329,
thereby amending the city charter empowering it to fix the license fee and regulate businesses,
trades and occupations as may be established or practiced in the City. De Leon was assessed for
P50 annual fee it being shown that he was engaged in property rental and deriving income
therefrom. The latter assailed the validity of the ordinance arguing that it is ultra vires for there is
no statury authority which expressly grants the City of Baguio to levy such tax, and that there it
imposed double taxation, and violates the requirement of uniformity.
ISSUE:
Are the contentions of the defendant-appellant tenable?
HELD:
No. First, RA 329 was enacted amending Section 2553 of the Revised Administrative Code
empowering the City Council not only to impose a license fee but to levy a tax for purposes of
revenue, thus the ordinance cannot be considered ultra vires for there is more than ample
stature authority for the enactment thereof. Second, an argument against double taxation may
not be invoked where one tax is imposed by the state and the other is imposed by the city, so
that where, as here, Congress has clearly expressed its intention, the statute must be sustained
even though double taxation results. And third, violation of uniformity is out of place it being
widely recognized that there is nothing inherently obnoxious in the requirement that license fees
or taxes be exacted with respect to the same occupation, calling or activity by both the state and
the political subdivisions thereof.
9) Sison v. Ancheta (130 SCRA 654)
FACTS:
Batas Pambansa 135 was enacted. Sison, as taxpayer, alleged that its provision (Section
1) unduly discriminated against him by the imposition of higher rates upon his income as a
professional, that it amounts to class legislation, and that it transgresses against the equal
protection and due process clauses of the Constitution as well as the rule requiring uniformity in
taxation.
ISSUE:

Does BP 135 violates the due process and equal protection clauses, and the rule on
uniformity in taxation?
HELD:
There is a need for proof of such persuasive character as would lead to a conclusion that
there was a violation of the due process and equal protection clauses. Absent such showing, the
presumption of validity must prevail. Equality and uniformity in taxation means that all taxable
articles or kinds of property of the same class shall be taxed at the same rate. The taxing power
has the authority to make reasonable and natural classifications for purposes of taxation. Where
the differentiation conforms to the practical dictates of justice and equity, similar to the
standards of equal protection, it is not discriminatory within the meaning of the clause and is
therefore uniform. Taxpayers may be classified into different categories, such as recipients of
compensation income as against professionals. Recipients of compensation income are not
entitled to make deductions for income tax purposes as there is no practically no overhead
expense, while professionals and businessmen have no uniform costs or expenses necessary to
produce their income. There is ample justification to adopt the gross system of income taxation
to compensation income, while continuing the system of net income taxation as regards
professional and business income.

10) Juan Luna Subdivision, Inc. v. Treasurer of Ormor City (22 SCRA 6
FACTS:
Juan Luna Subdivision is a local corporation which issued a check to the City Treasurer of
Manila for amount to be applied to its land tax for the second semester of 1941. The records of
the City Treasurer do not show what was done with the check (It appears that it was deposited
with the Philippine National Bank [PNB]). After liberation (WWII), the City Treasurer refused to
refund the corporations deposit or apply it to such future taxes as might be found due, while the
Philippine Trust Co (to which the check was presented)was unwilling to reverse its debit entry
against Juan Luna Subd. Said amount is also subject of another disagreement between the
corporation and the City Treasure, with the corporation claiming that the whole amount of the
check for the taxes for the last semester of 1941 have been remitted by Commonwealth Act 703
(1945).
ISSUE:
Whether the provision allowing the remission covers taxes paid before the enactment of
Commonwealth Act 703, or taxes which were still unpaid.
HELD:
The law is clear that it applies to taxes and penalties due and payable, i.e. taxes owed or
owing. The remission of taxes due and payable to the exclusion of taxes already collected does
not constitute unfair discrimination. Each set of taxes is a class by itself, and the law would be
open to attack as class legislation only if all taxpayers belonging to one class were not treated
alike. Herein, they are not. The taxpayers who paid their taxes before liberation and those who
had not were not on the same footing on the need of material relief. Taxpayers who had been in
arrears in their obligation would have to satisfy their liability with genuine currency, while the
taxes paid during the occupation had been satisfied in Japanese War Notes, many of the mat a
time when those notes were almost worthless. To refund those taxes with restored currency
would be unduly enrich many of the payers at a greater expense to the people at large.
11) Association of Custom Brokers, Inc. v. Mun. Board, City of Manila (93 PHIL 107)
FACTS:

The Association of Customs Brokers, which is composed of all brokers and public service
operators of motor vehicles in the City of Manila, challenges the validity of Ordinance 3379 on
the grounds (1) that while it levies a so-called property tax, it is in reality a license tax which is
beyond the power of the Manila Municipal Board; (2) that said ordinance offends against the rule
on uniformity of taxes; and (3) that it constitutes double taxation.
ISSUE:
Whether the ordinance infringes on the rule on uniformity of taxes as ordained by the
Constitution.
HELD:
While the tax in the Ordinance refers to property tax and it is fixed ad valorem, it is merely
levied on all motor vehicles operating within Manila with the main purpose of raising funds to be
expended exclusively for the repair, maintenance and improvement of the streets and bridges in
said city. The ordinance imposes a license fee although under the cloak of an ad valorem tax to
circumvent the prohibition in the Motor Vehicle Law. Further, it does not distinguish between a
motor vehicle for hire and one which is purely for private use. Neither does it distinguish between
a motor vehicle registered in Manila and one registered in another place but occasionally comes
to Manila and uses its streets and public highways. The distinction is necessary if the ordinance
intends to burden with tax only those registered in Manila as may be inferred from the word
operating used therein. There is an inequality in the ordinance which renders it offensive to the
Constitution.

12) Ormoc Sugar Co., Inc. v Treasurer of Ormoc City (22 SCRA 603(
FACTS:
In 1964, the Municipal Board of Ormoc City passed Ordinance 4, imposing on any and all
productions of centrifugal sugar milled at the Ormoc Sugar Co. Inc. in Ormoc City a municipal tax
equivalent to 1% per export sale to the United States and other foreign countries. The company paid the
said tax under protest. It subsequently filed a case seeking to invalidate the ordinance for being
unconstitutional.

ISSUE:
Whether the ordinance violates the equal protection clause.

HELD:
The Ordinance taxes only centrifugal sugar produced and exported by the Ormoc Sugar Co. Inc.
and none other. At the time of the taxing ordinances enacted, the company was the only sugar central in
Ormoc City. The classification, to be reasonable, should be in terms applicable to future conditions as well.
The taxing ordinance should not be singular and exclusive as to exclude any subsequently established
sugar central, of the same class as the present company, from the coverage of the tax. As it is now, even
if later a similar company is set up, it cannot be subject to the tax because the ordinance expressly points
only to the company as the entity to be levied upon.

13) VILLEGAS vs. HIU CHIONG, GR No. L-29646, November 10, 1978 (86 SCRA 270)
FACTS:
The Municipal Board of Manila enacted Ordinance 6537 requiring aliens (except those employed inthe
diplomatic and consular missions of foreign countries, in technical assistance programs of the government
and another country, and members of religious orders or congregations) to procure the requisite mayors
permit so as to be employed or engage in trade in the City of Manila. The permit fee is P50, and the
penalty for the violation of the ordinance is 3 to 6 months imprisonment or a fine of P100 to P200, or
both.
ISSUE:
Whether the ordinance imposes a regulatory fee or a tax.
Held:
The ordinances purpose is clearly to raise money under the guise of regulation by exacting P50
from aliens who have been cleared for employment. The amount is unreasonable and excessive because it
fails to consider difference in situation among aliens required to pay it, i.e. being casual, permanent, parttime, rank-and-file or executive. [ The Ordinance was declared invalid as it is arbitrary, oppressive and
unreasonable, being applied only to aliens who are thus deprived of their rights to life, liberty and property
and therefore violates the due process and equal protection clauses of the Constitution. Further, the
ordinance does not lay down any criterion or standard to guide the Mayor in the exercise of his discretion,
thus conferring upon the mayor arbitrary and unrestricted powers. ]

14) Misamis Oriental Association of Coco Traders, Inc. v. Department of Finance Secretary (238 SCRA 63)
FACTS:
Petitioner Misamis Oriental Association of Coco Traders, Inc. is a domestic corporation whose
members, are engaged in the buying and selling of copra. The petitioner alleges that prior to the issuance
of Revenue Memorandum Circular 47-91, which implemented VAT Ruling 190-90, copra was classified as
agricultural food product under 103(b) of the National Internal Revenue Code and, therefore, exempt
from VAT at all stages of production or distribution. Said circular classified copra as an agricultural nonfood
product and declared it "exempt from VAT only if the sale is made by the primary producer pursuant to
Section 103(a) of the Tax Code, as amended." The reclassification had the effect of denying to the
petitioner the exemption it previously enjoyed when copra was classified as an agricultural food product
under 103(b) of the NIRC.
ISSUE:

Is RMC No. 47-91 is discriminatory and violative of the equal protection clause of the Constitution
because while coconut farmers and copra producers are exempt, traders and dealers are not, although
both sell copra in its original state. Petitioners add that oil millers do not enjoy tax credit out of the VAT
payment of traders and dealers?
HELD:

NO. The argument has no merit. There is a material or substantial difference between coconut
farmers and copra producers, on the one hand, and copra traders and dealers, on the other. The former
produce and sell copra, the latter merely sell copra. The Constitution does not forbid the differential
treatment of persons so long as there is a reasonable basis for classifying them differently. It is not true
that oil millers are exempt from VAT. Pursuant to 102 of the NIRC, they are subject to 10% VAT on the

sale of services. Under 104 of the Tax Code, they are allowed to credit the input tax on the sale of copra
by traders and dealers, but there is no tax credit if the sale is made directly by the copra producer as the
sale is VAT exempt. In the same manner, copra traders and dealers are allowed to credit the input tax on
the sale of copra by other traders and dealers, but there is no tax credit if the sale is made by the
producer.
15) Tolentino v. Secretary of Finance (235 SCRA 630)
FACTS: